This study examines whether investors overreact to bad news during good times (economic expansion) and under react to bad news during bad times (economic downturns). The study examines the investors' overreactions and under reactions to bad news during business cycles. It is found that the immediate price reaction to a firms' profit warning (bad news) is much stronger during periods of economic expansion than during periods of economic contraction. Firms that issue bad news during good times are severely punished by investors as opposed to firms that release negative news during bad times. Furthermore, the size of the company and the sector in which it operates is a major factor in the reaction of these firms' price shares due to the issue of the profit warning. --P. ii.